An important ruling for sole directors and their company’s Articles of Association
A recent court ruling has called the following into question: Can a company with Model Articles be run by a sole director?
The recent case of Hashmi vs Lorimer-Wing at the High Court has unexpectedly issued a judgement that has implications for any private company with a sole director that has adopted the Model Articles – or bespoke Articles of Association that are based on the Model Articles.
Specifically, they have decided that these Articles (which specify that, generally, the quorum for director’s meetings is two) do not permit a lone director to exercise decision making powers.
On that basis, a sole director would not be able to make valid decisions alone and, if they do so, they may be deemed to be acting without authority, invalidating that decision.
The background to the case
Fore Fitness Investments Holdings Limited (the “Company”) was incorporated with a sole director named Lorimer-Wing. A second director, Hashmi, was subsequently appointed and both directors were also shareholders of the Company.
Disagreements then arose between the director-shareholders, which culminated in Lorimer-Wing informing Hashmi that he had been removed as a director, leaving Lorimer-Wing as a sole director once more.
Hashmi presented an unfair prejudice petition in his capacity as a shareholder and the Company, represented by Lorimer-Wing, its sole director, served a defence and counterclaim. Hashmi applied to strike out the Company’s counterclaim on the grounds that Lorimer-Wing lacked the authority to direct the Company to file the counterclaim as a sole director under the articles of the Company. This led to the High Court having to directly consider the relationship between the Company’s articles and the ability of the sole director to act on behalf of a company, and ruled in Hashmi’s favour.
It is hoped that the government will amend the Model Articles to remove the provision for a quorum of two or that the Hashmi vs Lorimer-Wing decision may be appealed.
However, in the meantime, the general advice for companies with Model Articles and a sole director is to:
- appoint a second director (ensuring that all future meetings are quorate), and ratify all decisions and actions previously undertaken by the sole director OR
- amended the existing articles (with the quorum adjusted to one) and ratify all decisions and actions previously undertaken by the sole director.
We are currently working to identify any of our company secretarial clients that may be affected by this ruling and we will then be in touch with a suggested course of action. In the meantime, please contact our team if you have any queries.